DeFi can be 100 times bigger than today in 5 years


Decentralized finance (DeFi) is a natural product made possible by blockchain technology, and it has a suitable and ready-made infrastructure to promote the technology to enter a greater competitive environment. Since the Ethereum network went live in July 2015, the field has advanced by leaps and bounds. At present, the transaction volume of the Ethereum network has increased by 33 times to 1.2 million transactions per day. If other chains are included, the daily transaction volume of the blockchain will exceed millions.

Most of these transactions came from DeFi services such as Uniswap, which facilitated more than $1 billion in swaps every day, and loan agreements such as Aave, Compound, and BondAppetit, with a market size of tens of billions of dollars. Although these are large numbers by any standard, they are only a decimal point in the trillion-dollar traditional finance (TradFi) industry.

DeFi is just the skin of TradFi services

The traditional financial system needs to support the exchange of goods and services, including stock markets, debt markets, derivatives markets, commodity markets, payments, etc. It is up to service providers—banks, insurance companies, stock exchanges, financial intermediaries, custodians, etc.—that they charge trillions of dollars in fees for the services they provide.

The current mainstream DeFi services include lending, decentralized transactions, and revenue aggregation-compared with the extensive financial services provided by TradFi, this is a relatively short list. This will not maintain the status quo, because DeFi developers are actively exploring and building more services for the ecosystem. Agreements to find the right product/market fit will explode, for example, The recent rise of dYdX.

The trillion-dollar TradFi market has matured

Personal banking. Global retail banking revenue is estimated A variety of consumer financial products worth 2.3 trillion US dollars, including loans/loans, mortgage products, payments, etc.Specifically, consumer payments and transactions bring more than 500 billion U.S. dollars in revenue to global banks every year, and can be achieved through frictionless user interfaces, global stablecoins, and a wide range of acceptance points-Facebook Diem’s ​​ambitions Before supervision is delayed.

capital market. Global stock market capitalization estimated More than 100 trillion U.S. dollars, and the total value lock (TVL) of decentralized finance only exceeds 243 billion U.S. dollars. Security tokens are an inevitable trend that regulators ultimately need to approve and build a regulatory framework. Centralized and decentralized exchanges that comply with Know Your Customer (KYC) requirements can use TradFi to enter this trillion-dollar stock market.

insuranceThe global insurance industry is another trillion-dollar TradFi industry that can be improved through smart contract technology. About one-third of the global insurance premium is in management and commission costs, which is essentially changing consumers. Smart contracts can cheaply, quickly and accurately implement the insurance process from underwriting to claims, and will become a rich source of income for the DeFi industry.

DeFi’s addressable market size

Trading volumeThe Ethereum network will process more than 1.3 million transactions per day in 2021, including remittances, transactions, lending, lending, and various other types of transactions.This is a small number because Comparison of There are more than 1 billion credit card transactions every day worldwide, and approximately 5.5 billion transactions every day trading Nasdaq’s trading volume. Capturing 1% of credit card transactions on the Ethereum chain is at least 8 times its current transaction volume.

Agreement revenue. The annualized agreement revenue of all DeFi agreements is estimated to be USD 5 billion. This is again only a small part of the global retail banking revenue of 2.3 trillion USD; the global cross-border payment revenue of 2 trillion USD and the global stock exchange revenue of 35 billion USD. The TradFi industry is very profitable, and a 1% market share means a 10-fold increase in DeFi revenue.

Encryption crackdown accelerates the DeFi trend. Although the country likes China continues to crack down on cryptocurrencies, It will only accelerate the use of DeFi.positive Ethereum wallet and browser extension MetaMask User has 10 times to edit 10 million in August 2021Although this number may seem high, it only represents a penetration rate of 5% among the 221 million cryptocurrency users worldwide. This shows that ordinary encrypted users who are accustomed to frictionless centralized services such as Robinhood are a huge untapped market for DeFi and can be captured as UI/UX improves.

related: China’s encryption ban: Is it worth paying attention to buying on dips?

DeFi has only three years of history, and its service will become the mainstream of the crypto community in the DeFi summer of 2021. Lending platforms such as Compound and Aave, as well as decentralized exchanges such as Uniswap and Curve, have strengthened their position as market-leading agreements with first-mover advantages. These are hard-won. Hayden Adams, founder of Uniswap wrote An article detailed his history of launching Uniswap V1-the culmination of faith, friendship, support, and hard work during the cryptocurrency winter. The DeFi builder community has become stronger in this new cycle. More programmers from traditional startups and large technology companies have joined the blockchain and DeFi fields. This can only mean that we have more resources than ever before. Development space and technology.

On February 4, 2004, a dormitory project was born, and in 2021 it became a company with a market value of 1 trillion US dollars and 3 billion users—it was called Facebook, or Metadata after the name change. DeFi has just started. With the influx of resources and talents, a 100-fold increase in the next 5 years is not a dream, but an inevitable.

This article does not contain investment advice or recommendations. Every investment and trading action involves risks, and readers should research on their own when making a decision.

The views, thoughts, and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Artem Tolkachev He is the founder and CEO of BondAppetit and an investor in DeFiHelper. Since 2011, he has been an intellectual property and information technology lawyer and entrepreneur. In 2016, Artem founded and led the Deloitte CIS Blockchain Lab. As part of the plan, he led a series of innovative projects involving the implementation of enterprise blockchain solutions, the tokenization of real-world assets, the taxation and legal structure of security token products, and the development of cryptocurrency and blockchain legislation. develop.